As a debt collection agency, you will likely need to find a high-risk merchant account for payment processing. This type of account allows you to take advantage of payment processing services even if your business is considered high-risk by financial institutions. It is important to have an understanding of debt collection high-risk merchant accounts, especially if you are an agency or individual dealing with payment processing.
Overview on Debt Collection Agencies
Debt collection companies are any type of company that retrieves payments on the debt that an individual or a business owes. It is incredibly common for debt collection agencies to work with companies in industries such as auto credit, mortgages, health care, financial services, and education.
There are multiple model types that a debt collection agency may choose from, all of which payment processing providers tend to consider high-risk. Some debt collection companies will simply recover collateral or provide repossession services, whereas others may also engage in credit reporting, including reporting negligent payments or reporting debtors who follow a repayment plan and remove the debt.
Some debt collection businesses will also provide services related to collecting debt portfolios, while other debt collection agencies act as a delinquent account collection service.
Why Debt Collection Agencies are Labeled as High-Risk
As with most other high-risk merchant accounts, debt collection agencies qualify as high-risk due to the frequency of chargebacks, along with other factors. Chargebacks refer to when someone pays with a credit card then later disputes the charge with the credit company to get a refund to their balance. This leaves the company the person paid out of the given amount of money.
Another high-risk component of debt collection merchant accounts is that many customers may miss payments to these accounts. The sheer volume of potential missed payments is a red flag for merchant services providers when considering partnering with debt collection agencies. These agencies then need to spend time and resources in order to recover the missed payments that were owed to banks or other creditors.
Reputational risk is another factor which leads to debt collection agencies requiring high-risk payment processing. Debt collectors frequently have negative reputations due to the occasional requirement for aggressive action when attempting to collect payment. This reputational risk creates obstacles for debt collectors when it comes to acquiring new customers.
The setup of debt collection agencies to include recurrent billing models also contributes to their classification as a high-risk account for merchant services providers. Most debt collectors set up payment plans for debtors who are unable to pay the amount due in a lump sum. By their nature, payment plans include recurring billing models which carry risks, such as the debtor forgetting about the payment and failing to make it. Or if the debtor has an automatic payment set up, they may forget and then contest the charge via requesting a chargeback or by working directly with the debt collectors.
Finally, debt collection agencies tend to have inconsistent cash flow. Part of this is due to the previously mentioned issue of debtors missing payments, but this is also the result of the workload fluctuation that occurs for debt collection agencies when moving through clients.
How Being Labeled as High-Risk Affects Credit Card Processing for Collection Agencies
The requirement that debt collection agencies turn to high-risk merchants can pose quite a challenge for these companies. Some companies take advantage of high-risk businesses by charging them higher fees. Others will not even accept high-risk applications due to the threat to their steady income streams.
It is also common for high-risk payment processing to limit the number of transactions a merchant account can conduct or require them to have a very aggressive cash reserve. Some will also lock you into a long-term contract that comes with an exorbitant termination fee.
Why You Should Choose BankCard Services for a High-Risk Merchant Account
Instead of dealing with the hassle of finding approval and paying high fees on long contracts, get your high-risk merchant account from BankCard Services. After we’ve helped you get approved for your high-risk merchant accounts, we also help you maintain that approval going forward.
With BankCard services, the application process has higher approval rates and a faster approval process. BankCard Services offers convenient month-to-month contract terms, so you won’t need to worry about restrictive, long-term contracts or high cancellation fees.
BankCard Services also offers a wide range of services and products that you can mix and match to meet the unique needs of your business. We also have numerous online payment gateways that feature fraud and chargeback prevention, including virtual terminals, POS systems, PCI compliance, next-day funding, and more.
Most debt collection agencies will need to find high-risk merchant accounts. To reduce your fees and increase your chances of approval, work with BankCard Services.